The Economic Effects of the Civil War

The Economies of the North and South, 1861-1865

In 1861, a great war in American history began. It was a civil war between the north and south that was by no means civil. This war would have great repercussions upon the economy of this country and the states within it. The American Civil War began with secession, creating a divided union of sorts, and sparked an incredibly cataclysmic four years.

Although the actual war began with secession, this was not the only driving force. The economy of the Southern states, the Confederacy, greatly if not entirely depended on the institution of slavery. The Confederacy was heavily reliant on agriculture, and they used the profits made from the sale of such raw materials to purchase finished goods to use and enjoy. Their major export was cotton, which thrived on the warm river deltas and could easily be shipped to major ocean ports from towns on the Mississippi and numerous river cities. Slavery was a key part of this, as slaves were the ones who harvested and planted the cotton. Being such an enormous unpaid work force, the profits made were extraordinarily high and the price for the unfinished goods drastically

Tax structure in the Union during the war also encouraged businesses to consolidate because taxes were levied at each stage of production. Furthermore, the government usually placed its orders with large firms, finding they provided better service. Consequently, this promoted organization of labor.

The Southern economy also eventually fell into ruin. There were bread riots in Richmond, and on one occasion President Davis went out to meet the angry people, and when he could not calm them, he reached into his pockets and threw whatever money he had to the angry crowd to try and appease them. Towards the end of the war, one stick of firewood cost $5.00, and it was almost impossible to buy food and clothing.

Producers of arms and munitions prospered and so did canneries and meat packers. The farm machine industry was also stimulated due to the loss of farmers to the army and the simultaneous demand for farm products. In the north, farm prices advanced during the war, and farmers did well. Afterwards, they declined sharply due to the newly cultivated land that came to be during the war. Subsequently, farmers had trouble paying off debts they incurred during the war to increase product outturn. They developed a deep distrust of paper money and lost much of their former independence.

The Civil War augmented the nation greatly, and one of these changes was the routine use of paper currency. In 1861, Congress issued Demand Notes to finance the civil war. It was the first paper money issued since Continentals, which were first issued in 1775. In 1862, Congress discontinued the issuance of Demand Notes and instead circulated Legal Tender notes. Confidence in these notes waned when the Treasury stopped redeeming them during the war to save gold and silver. People followed this example, as the need for money was great, hence coin-hoarding. This in turn led to the exchange of small change substitutes, everything from bills and tickets to postage stamps.

Between 1861 and 1865, Confederate currency was being distributed to millions of Southerners on the assurance that the south would win and the bank notes would be redeemable. In an effort to debase this currency, the Union printed counterfeit money and circulated it in the South. Inflation became rampant in both the North and the South, yet it was far worse in the Confederacy. By the end of the war, Confederates lost complete confidence in this money, which beca

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Approximate Word count = 1633
Approximate Pages = 7 (250 words per page double spaced)